1 Profitable Forex Trading Strategy - Candlestick Patterns

The Forex currency exchange is the largest financial market in the world and allows traders to capitalize upon currency trends to generate profits. There are many Forex trading strategies a currency trader could use to profit in this business. This article explains what specific candlestick patterns we look for to make some very profitable forex trades.

Candlesticks in Forex Trading - There are a few things you need to know when trading candlesticks. In my experience, the 30 minute charts are the best ones to use when trading candlestick patterns. You must always wait for the candles to complete to make sure the candlestick pattern is complete. Do not guess where the candle will close and try to get into a trade early.

There are many other candlestick patterns, however some are more dependable than others. The ones I use are called engulfing patterns. Specifically "Bullish Engulfing" and Bearish Engulfing". Both of these are reversal patterns and are considered to be some of the most profitable candlestick patterns to trade. When the candle body engulfs the previous candles body, this is called an "engulfing" pattern. Bullish engulfing patterns are found at price bottoms and bearish engulfing patterns are found at price tops.

How to Trade Engulfing Candles - To trade engulfing candle stick patterns, we're looking for an end of an uptrend or downtrend. This doesn't have to be a strong trend but it does need to have some momentum that looks like it's coming to an end. A good indication of a trend coming to an end is when the bodies of the candles are getting smaller in size. That means the momentum may be running out and this is when you should be looking for a reversal in price action. This could also be the beginning of a consolidation period, so we need to be aware of that.

In an uptrend, we look for an "up" candle immediately followed by a "down" candle, where the body of the "down" candle engulfs the previous "up"' candle. This is the setup we want to see so we take the short trade immediately following the close of this candlestick. Next, we count how many pips away the top of the highest last 2 candles are, including the wick, and add 5 pips. This is our Stop Loss. Our Take Profit target should be set to twice this value. For example, if our stop loss is 40 pips away, then our take profit should be at least 80 pips. Money management/risk to reward ratio, are key in this business. A long trade would be similar to a short trade except we're looking for a downtrend reversal to get into a trade.

You can search around the web for forex candlestick patterns and learn all you need to know about them, but remember there are so many of them, you need to just focus on a few. As I mentioned, the engulfing candlestick patterns are some of the best patterns to trade so if you stick with those, you'll do very well.
Andrew Daigle is the owner and author of many successful websites including ForexBoost, a free Forex educational site to learn Forex trading strategies and partners with Forex Confidential for live trading sessions and their very profitable forex trading signals service.

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1 comments to "Profitable Forex Trading Strategy - Candlestick Patterns"
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Catherine
on January 11, 2009 at 7:41 PM  

Thanks for visiting my site. Well, I do read some info about candle stck trading method before and agree that it is not a bad trading tool. But I think it is more suitable for short-term trading? You had described the method very clear and understand. Thanks for sharing this....

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